UK consumer price deflation continues in October

The Consumer Price Index (CPI) fell by 0.1% in the year to October, the same as in the year to September. This was in line with Experian’s expectations and continued the trend of inflation hovering around the zero mark which has been evident throughout this year.

However, this is the first time that deflation has been seen for two consecutive months as the CPI change of 0.1% recorded in September persisted into October. Upward price pressures for clothing and footwear and a range of recreational goods were offset by downward price pressures for university tuition fees, food, alcohol and tobacco, resulting in no change to the overall index between the two months.

The latest figures confirm that inflationary pressures in the economy remain extremely subdued. Core inflation which strips out food and fuel prices edged up slightly to 1.1% in October, but remains very low. Despite buoyancy in the service sector, the ‘All Services’ component of the CPI eased from 2.5% to 2.2%, while goods inflation remained firmly in negative territory at -2.1%.

Inflation is expected to remain near zero for the next few months as deflation in the food and fuel categories continues to depress price rises. Further out, the marked food and oil price declines of the past year will drop out of the 12-month CPI comparison and the overall CPI rate will pick-up, though remaining below 1% for most of 2016 and below the Bank of England’s 2% target until 2018.

In conjunction with the recent buoyant labour market data, the latest outcome for inflation will continue to boost household finances and support healthy consumer spending growth. We forecast 3% this year and 2.3% in 2016. These advances in turn will support solid GDP expansion next year at a time when the global trade outlook looks increasingly fragile, with net trade likely to persist as a drag on overall growth.